Expect Stock Market Volatility To Rise Into Holiday Season

“Strange” price action might be considered the investing theme for this entire week.

The broader stock market started off with two heavy selling days for Technology as the NASDAQ Composite failed to confirm breakouts for the S&P 500 Index and Dow Jones Industrial Average. This script flipped over the past few days have with Technology acting relatively better while “cyclicals” have weakened.

Further, “stay at home” stocks got drubbed early in the week with “re-opening” stocks like hotels, cruise liners, casinos, and airlines doing well. That also completely flipped over the past few days as rising COVID cases have re-gained the news headlines.

So which is real, or which is Memorex? as they say. 

I tend to feel the Technology weakening IS a big deal and precisely at a time when investor sentiment has gotten quite optimistic (More on this below) This is joined by Defensive sectors strengthening while none of the indices has been able to push back to challenge the intra-day peaks made Monday. While market breadth has indeed improved since late October, it’s been steadily declining in recent months. And, despite the S&P 500’s move back over its October peak, market breadth remains far below and getting worse.

nasdaq composite e mini futures trading weakness decline investing forecast november 13

The Bottom Line: I believe that it remains right to be selective but to favor Cryptocurrencies, Cannabis stocks, and Defensives. At the same time, I am avoiding the large-Cap FANG names. Other themes include: Small-cap stocks over large cap stocks and value stocks trump growth stocks.

While the Election outcome is still somewhat uncertain, and a Vaccine has been announced (with an unclear timetable), investors seem to think that getting past September and October is a bullish thing. We’ll see. While in a seasonally positive time, we never really experienced the kind of traditional drawdowns seen during the Fall months. And the Election period is going far more smoothly than expected. If we know anything about 2020, however, it’s that it just keeps coming back and won’t end. I suspect volatility lies ahead and using gains in the days ahead to lighten up will make a world of sense in the final 7 weeks of the year.

Twitter:  @MarkNewtonCMT

The author may have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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